Americans Lagging in LTC Planning

A Northwestern Mutual study found that a third of Americans havent factored their long-term care needs into their retirement planning.

By Danielle Andrus|November 09, 2012 at 08:15 AM

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A Northwestern Mutual study released Tuesday found that a third of Americans haven’t factored their long-term care needs into their retirement planning. Almost a quarter aren’t sure how they’ll address long-term care needs and 8% say they’re not going to address them at all.

Steve Sperka, vice president of long-term care for Northwestern Mutual attributed this apparent apathy to a “very large educational gap,” he told AdvisorOne on Thursday.

“The best thing for advisors to do,” he said, “is to wrap the concept of long-term care into the concept of financial security during retirement. We find that for many people, their biggest risk to achieving their retirement hopes and dreams is a long-term care event.”

The Long-Term Care Awareness Study was conducted by Harris Interactive among 2,516 adults in October.

The study found 21% of respondents aren’t sure what options for long-term care are available. Half of respondents said they think an assisted living facility would be available to them if they needed it and 35% said they were considering a nursing home for the long-term care needs. Thirty-six percent said they could rely on in-home care from a family member if they needed it.

This low level of planning is troubling considering 55% of respondents think they will need long-term care at some point. Furthermore, many people don’t appreciate how expensive long-term care actually is. For example, nearly two-thirds of respondents said a year in nursing home would cost less than a year’s tuition at Harvard. One year at Harvard for undergraduate studies is currently going for about $37,500, according to the school’s admissions website. The national average for one year at a nursing home in a semi-private room is $73,000 or $200 dollars per day, according to Genworth’s 2012 Cost of Care survey.

Furthermore, almost half of respondents believe Medicare will cover their long-term care costs—it won’t. The study found just 17% of respondents are thinking about long-term care insurance and 12% already own it.

“There’s a disconnect between what [clients] are planning for versus where reality is with medical advances and lifestyles,” Sperka said, pointing out that less than half of respondents said they were prepared to live past age 75 and one in for said they could live to 95. “If you’re a healthy, 50-year-old woman, 60% will live to 90,” he said.

While the current study shows there is still a great deal of work left to do to prepare clients for long-term care, Sperka said he has seen improvements.

“More and more people want to talk about this,” he concluded. “We’re seeing it in our sales.”

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Read a two-part series from Michael Kitces about the increasing (or is it decreasing?) risk of more expensive LTCI.

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